## Transcript of Asia and Pacific Department Press Briefing

_IMF News, October 13, 2022_

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## Bibliographic details
- Published: October 13, 2022

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### Regional growth outlook and shocks
- April WEO growth forecasts for Asia and Pacific downgraded by 0.9 percentage points in 2022 and 0.7 percentage points in 2023.
- Growth projected at 4.0 percent in 2022 and 4.3 percent in 2023 for Asia and Pacific.
- Region’s recent past average growth: 5.5 average growth over the previous two decades.
- Key materialized shocks:
  - Significant tightening of global financial conditions raising government borrowing costs and depreciating Asia’s currencies.
  - War in Ukraine provoking a sharp slowdown in Europe and keeping global commodity prices high and volatile.
  - China’s uncharacteristic and sharp slowdown weakening regional and global momentum.

### Inflation, monetary policy, and exchange rates
- Inflation dynamics:
  - Asia saw more modest inflation in 2021; 2022 saw sharp volatility in global commodity markets after Russia’s invasion of Ukraine, putting additional pressure on headline inflation in the first half of 2022.
  - Rising food prices drove headline inflation, particularly in Asian EMDEs; core inflation has also risen as output gaps close.
  - Core inflation now exceeds central bank targets in most Asian economies.
- Monetary policy guidance:
  - Advice for most of the region: monetary policy should continue tightening.
  - Exceptions: China and Japan, where recovery has been weaker, slack remains substantial, inflation has not risen as sharply, and policy space exists.
  - Baseline: inflation expected to have peaked by end-year.
  - Risk: large exchange rate depreciations could lead to higher and more persistent inflation, requiring more monetary tightening.
- Exchange rates and trade:
  - Many Asian currencies have depreciated sharply in 2022.
  - Tightening of U.S. monetary policy widened interest rate differentials—a main factor driving depreciation across Asia.
  - War in Ukraine contributed to deterioration of terms of trade for many countries in the region.

### Fiscal policy, debt, and vulnerabilities
- Fiscal guidance:
  - Fiscal consolidation should continue to support monetary policy stance and stabilize debt.
  - Given limited fiscal space, interventions to mitigate global food and energy shocks on vulnerable households should be well targeted, temporary, and budget neutral to sustain consolidation.
- Debt dynamics and risks:
  - Asia is now the largest debtor in the world besides being the biggest saver.
  - Several countries are at high risk of debt distress.
  - Public and private debt dynamics worsened following the pandemic because of slower growth, rising rates, and higher debt levels.
  - Asia’s share of global debt rose from 25 percent pre-pandemic to 38 percent.
  - Large depreciations and rising interest rates could trigger financial stress in countries with high leverage among non-financial corporates and households, unhedged balance sheets, and refinancing risks.
  - If interest rates rise substantially, the fiscal balance needed to stabilize debt would increase, crowding out fiscal space for other priorities.

### Fragmentation, trade, and integration
- Geo-economic fragmentation:
  - Signs of growing geo-economic fragmentation are a concern.
  - Asia and Pacific play a central role in global production and would suffer significant losses under sharp fragmentation scenarios that divide the world into separate trading blocs.
  - The Regional Economic Outlook (launch on October 28) contains a chapter documenting potential losses from fragmentation scenarios.
- Regional integration:
  - Inter-regional trade in Asia constitutes over half of total Asian trade.
  - RCEP is welcomed as it demonstrates continued appetite for further regional integration and has the potential to promote trade, investment, and growth.
  - Continued efforts at multilateral solutions, including through the WTO, remain important.

### Country-specific points and forecasts
- China:
  - Growth forecast revised to 3.2 percent for this year and 4.4 percent for next year.
  - Main headwinds: zero-COVID strategy and continuing stress in the real estate sector, plus weak external demand.
  - Recommended policy actions: find a safe exit from zero-COVID; comprehensive strategy to address real estate distress (including completion of presold houses and resolving property distress); provide more targeted fiscal support to boost consumption via improved social safety nets and targeted transfers; address medium-term productivity and labor force challenges.
- India:
  - Forecasted growth next year: 6.1 percent.
  - IMF view: 6.1 percent remains a bright spot globally; limited fiscal space constrains large-scale fiscal support; monetary policy likely to maintain a tightening bias given inflation; structural reforms and addressing scarring are key to mitigate slowdown risks.
- Bangladesh:
  - Growth forecast this year: 7.2 percent; forecast for next year: 6 percent.
  - Taka has depreciated by about 20 percent; reserves have gone down but remain at a comfortable level.
  - Bangladesh has requested a program from the IMF composed of a regular UCT program and Resilience and Sustainability Trust program; negotiation mission to begin next week.
- Vietnam:
  - First eight months growth: 8.8 percent.
  - Growth forecast this year revised to 7 percent (instead of 6 percent in prior outlook); forecast for next year: 6.2 percent.
  - Sources of growth: fiscal support, vaccination progress, strong export performance, manufacturing, and domestic consumption.
  - Recent financial jitters noted; State Bank of Vietnam supported liquidity and communication; need to improve transparency in the financial sector and examine banking–property interlinkages.
- Indonesia:
  - Projected real GDP growth for 2023: 5 percent.
  - Challenges: risk from a steeper-than-expected global tightening cycle and China slowdown; commodity price declines could affect growth and the current account.
  - Strengths: low public debt largely in local currency and strong policies and institutions.
- Nepal:
  - Program with the IMF ongoing; post-Covid recovery continuing.
  - Growth forecast: 4.2 percent this year.
  - Reserves have declined but remain above six months of imports.
  - Nepal Rastra Bank has raised interest rates; IMF supports maintaining a tightening bias and conservative implementation of measures; supports phase-out of import restrictions planned in October.
- Sri Lanka:
  - IMF reached a staff-level agreement on a four-year EFF program on September 1.
  - Initial disbursement requires IMF Board approval contingent on authorities taking prior actions and on reaching a solution on the debt situation.
  - Sri Lanka’s debt is assessed as unsustainable at this stage.
  - Two financing assurances needed for Board approval:
    - Official bilateral creditors’ assurance to restore debt sustainability in the context of the program.
    - Assurance that good faith efforts are underway to deal with private sector debt.
  - Timeline for debt negotiations is uncertain and depends on creditors and complexity; IMF is working with World Bank, Asian Development Bank, and Asian Investment Bank to help close the financing gap and address longer-term growth problems.
  - Sri Lanka remains a middle-income country; EFF is a regular IMF facility (non-concessional).

### Policy recommendations and priorities
- Short-term:
  - Continue monetary tightening where inflation and core inflation are above targets to anchor expectations.
  - Implement targeted, temporary, and budget-neutral social support to shield vulnerable households from food and energy shocks where fiscal space is limited.
  - Use macroprudential tools and strengthen financial sector transparency to limit financial stability risks from currency depreciations and rising rates.
- Medium-term:
  - Address real economy scarring (education disruptions, labor market shifts) to prevent long-term human capital losses.
  - Enhance productivity through structural reforms and digitalization; narrow digital divides and promote digital literacy (IMF programs such as Govtac support digitalization and government reform implementation).
  - Reduce risk of geo-economic fragmentation by lowering trade policy uncertainty and rolling back damaging trade restrictions; pursue multilateral solutions.
  - Strengthen debt transparency, debt management, and frameworks to handle sovereign and private debt distress.

*Transcript: Asia and Pacific Department press briefing, October 13, 2022 (IMF Communications Department).*

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## References

- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Bangladesh and the IMF](http://www.imf.org/external/country/BGD/index.htm)
- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Nepal and the IMF](http://www.imf.org/external/country/NPL/index.htm)
- [New Zealand and the IMF](http://www.imf.org/external/country/NZL/index.htm)
- [Sri Lanka and the IMF](http://www.imf.org/external/country/LKA/index.htm)
- [Vietnam and the IMF](http://www.imf.org/external/country/VNM/index.htm)
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_Source: https://www.imf.org/en/news/articles/2022/10/14/tr101322-transcript-of-asia-and-pacific-department-press-briefing_